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We take a look at the latest South African Stock Market , the JSE All Share Index PE ratio as calculated based on data released by the operator of the stock market, the JSE.
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All Share PE ratio over time up to end July 2019
Before we take a look at the JSE All Share PE ratio over time and the levels it is currently at, perhaps its best to explain exactly what the PE ratio measures and what it tells one about the valuation of a company and or the markets overall. In short the abbreviation PE stands for Price to Earnings.
So a PE ratio is the price over the earnings. So lets say company X is listed and its shares are trading at R100 a share. Same company X reported in their last set of results that their earnings came in at R10 a share.
This the PE ratio is R100/R10 = 10.
So its the value of the shares divided by the profits made by the company (or more broadly total value of all shares divided by total profits of all shares on the market). But now we have a PE ratio of 10. What does that tell us? What does it mean? Assuming company X will make R10 a share every year to infinity, the PE ratio of 10 tells you that in 10 years time, the company would have made in profits per share, what you are paying for the share price now. Or looked at differently R100 paid per share over PE of 10 gives you a earnings yield of 10%. Lets take an example that doesnt include so many 10's.
Company B makes a profit of R5.95 a share (and its share price is trading at R100 a share). The PE ratio would be R100/R5.95= 16.81. Thus the PE ratio of company B is 16.81. So assuming it makes R5.95 in profits each year, one would have to wait 16.81 years before profits made over 16.81 years equals what you are paying for the shares now, alternatively that's a earnings yield of 5.95% (R100 a share/ PE of 16.81 = 5.95)
So now that we know how to interpret a PE ratio, lets take a look at the monthly PE ratio's for the JSE All Share Index as well as a 13 month moving average which is indicative of a longer term PE ratio for the market as a whole.
So a PE ratio is the price over the earnings. So lets say company X is listed and its shares are trading at R100 a share. Same company X reported in their last set of results that their earnings came in at R10 a share.
This the PE ratio is R100/R10 = 10.
So its the value of the shares divided by the profits made by the company (or more broadly total value of all shares divided by total profits of all shares on the market). But now we have a PE ratio of 10. What does that tell us? What does it mean? Assuming company X will make R10 a share every year to infinity, the PE ratio of 10 tells you that in 10 years time, the company would have made in profits per share, what you are paying for the share price now. Or looked at differently R100 paid per share over PE of 10 gives you a earnings yield of 10%. Lets take an example that doesnt include so many 10's.
Company B makes a profit of R5.95 a share (and its share price is trading at R100 a share). The PE ratio would be R100/R5.95= 16.81. Thus the PE ratio of company B is 16.81. So assuming it makes R5.95 in profits each year, one would have to wait 16.81 years before profits made over 16.81 years equals what you are paying for the shares now, alternatively that's a earnings yield of 5.95% (R100 a share/ PE of 16.81 = 5.95)
So now that we know how to interpret a PE ratio, lets take a look at the monthly PE ratio's for the JSE All Share Index as well as a 13 month moving average which is indicative of a longer term PE ratio for the market as a whole.
So since January 2011, the JSE All Share average PE ratio is sitting at 17.78 As at the end of July 2019, the JSE All Share PE ratio was sitting at 17.36 (so just below the average levels since the start of 2011).
And the longer term PE ratio as measured by the 13 month moving average (which has been in constant decline for some time now), came in at 17.86, well above the level that the latest PE ratio of the markets came in at. So what does it tell us about the markets and its valuation? Well market valuations have certainly come down strongly since late 2016 when the market PE ratio was around the 23 mark. Since then company profits and earnings have been disappointing sending share prices tumbling down and dragging down PE ratios with them. The longer term 13 month moving average PE ratio (the dashed red line) has been in decline for some months now and shows that market valuations are coming down and has been coming down steadily for quiet some time now. The fact that the July 2019 PE ratio is so far below the 13 month moving average shows that valuations came down sharply in the last month. Largely driven by massive share price declines in counters such as Massmart and Intu properties
While it is handy to know what the overall market PE currently is, what it's longer term trend and average value is and when looking at the valuations and PE ratios of individual shares listed on the JSE one can compare individual company PE ratios and see how they compare to the overall market average PE.
So what's happened in SA equities markets in recent weeks? Well below a short summary from Peregrine Treasury Services for the last week in SA equities. Read the full weekly market wrap here.
SOUTH AFRICAN EQUITY
South African markets took on a very slow start to the week, with no more than R11 billion (average - R22 billion) trickling through the All Share index on Monday’s trading day. Relatively petty news came out of Old Mutual’s slight bickering with their ‘suspending’ CEO, Peter Moyo, and the legal battle that ensues. With a world of more materially important news, this headline is not worth wasting one’s time on - if anything, its more brand-damaging on Old Mutual and Moyo himself. Mondi reported more favorable results, when looking at their counterpart. Some of the numbers coming out of the paper-based producing firm were as follows:
Shoprite’s share price rallied by 9%, after the retailer reported that its core business, Supermarkets RSA, increased its sales by 4.9% for the 52 weeks ending 30 June 2019. In general, the move wouldn’t necessarily have been linked to guidance and results being in-line with expectations. The positive move seen in the share price is likely due to stronger sales growth for the period versus the headline earnings numbers which Shoprite actually gave negative guidance on.
Shoprite’s African business seems to be battling it’s way through the dark-and-dreary woods, especially in Angola, where hyper-inflation is veiling the country. Whether Shoprite decides to keep these kinds of countries within their portfolio, or not, could be a large factor, when looking at the firm’s forward-looking trajectory.
For the moment, both declining sales coupled with hyperinflation in Angola is, and will continue to be, a challenging situation for Shoprite to navigate. Currency instability in Angola or any other of Shoprite’s African business operations may force the company to examine its strategic geographic business locations on the continent in the longer run.
Read full article here
And the longer term PE ratio as measured by the 13 month moving average (which has been in constant decline for some time now), came in at 17.86, well above the level that the latest PE ratio of the markets came in at. So what does it tell us about the markets and its valuation? Well market valuations have certainly come down strongly since late 2016 when the market PE ratio was around the 23 mark. Since then company profits and earnings have been disappointing sending share prices tumbling down and dragging down PE ratios with them. The longer term 13 month moving average PE ratio (the dashed red line) has been in decline for some months now and shows that market valuations are coming down and has been coming down steadily for quiet some time now. The fact that the July 2019 PE ratio is so far below the 13 month moving average shows that valuations came down sharply in the last month. Largely driven by massive share price declines in counters such as Massmart and Intu properties
While it is handy to know what the overall market PE currently is, what it's longer term trend and average value is and when looking at the valuations and PE ratios of individual shares listed on the JSE one can compare individual company PE ratios and see how they compare to the overall market average PE.
So what's happened in SA equities markets in recent weeks? Well below a short summary from Peregrine Treasury Services for the last week in SA equities. Read the full weekly market wrap here.
SOUTH AFRICAN EQUITY
South African markets took on a very slow start to the week, with no more than R11 billion (average - R22 billion) trickling through the All Share index on Monday’s trading day. Relatively petty news came out of Old Mutual’s slight bickering with their ‘suspending’ CEO, Peter Moyo, and the legal battle that ensues. With a world of more materially important news, this headline is not worth wasting one’s time on - if anything, its more brand-damaging on Old Mutual and Moyo himself. Mondi reported more favorable results, when looking at their counterpart. Some of the numbers coming out of the paper-based producing firm were as follows:
- 8% increase earnings per share of EUR 0.962 cents per share.
- Profit before tax came in at EUR 632 million (up from the previous period by 29%)
- Earnings before interest, tax, depreciation and amortisation (six months) came in at EUR 894 million (beating the last period by five percent)
- Ordinary interim dividend of EUR 0.27 cents per share.
Shoprite’s share price rallied by 9%, after the retailer reported that its core business, Supermarkets RSA, increased its sales by 4.9% for the 52 weeks ending 30 June 2019. In general, the move wouldn’t necessarily have been linked to guidance and results being in-line with expectations. The positive move seen in the share price is likely due to stronger sales growth for the period versus the headline earnings numbers which Shoprite actually gave negative guidance on.
Shoprite’s African business seems to be battling it’s way through the dark-and-dreary woods, especially in Angola, where hyper-inflation is veiling the country. Whether Shoprite decides to keep these kinds of countries within their portfolio, or not, could be a large factor, when looking at the firm’s forward-looking trajectory.
For the moment, both declining sales coupled with hyperinflation in Angola is, and will continue to be, a challenging situation for Shoprite to navigate. Currency instability in Angola or any other of Shoprite’s African business operations may force the company to examine its strategic geographic business locations on the continent in the longer run.
Read full article here